Investing is a big commitment, so it’s important to find the right loan for the property. When it comes to the comparison of investment loans, looking into different options can be overwhelming, to say the least. What should borrowers look for in investment loans, and how do they choose the right one for them?
Know The Different Types Of Loans
One of the first things borrowers need to do is know and understand the different types of loans they may be eligible for. This way, they can feel confident going forward and finding a lender that offers their desired type of loan. The most common loan for a residential investment property is just a conventional mortgage.
This type of loan is backed by a mortgage broker or bank and typically requires a down payment. Another typical investment loan is a hard money loan, which is a type of loan specifically for investing purposes. When applying for this type of loan, lenders will look at the value of the investment property rather than the borrower’s credit score.
If a borrower is investing in a commercial property, then a commercial investment property loan is probably the way to go. In order to qualify for one of these loans, borrowers need to show lenders how they plan to bring in a steady income. This often comes with the need to show a business plan, and an intent to improve the property, if needed.
Understanding loan options is crucial for borrowers to have a better idea of what they need to qualify for their desired loan. From there, they can meet with potential lenders who offer the type of loan in mind and who can help them determine whether that loan — or a different option — is best for their situation.
Understand Down Payment Options
Different types of loans — and different lenders — will have varying down payment requirements. Often, the down payment can be a significant deciding factor because it can require a large sum of money upfront.
In fact, most investment loans require around a 20 percent down payment, but lenders may ask for more or less depending on the type of loan and even the property. This is why it’s essential to meet with more than one potential lender and ask about down payment options.
The down payment may impact the interest rate on the loan and can fluctuate depending on the type, location, or even the size of the property. Make sure to understand and compare your various down payment options.
Ask About Potential Payment Schedules
Once borrowers qualify for and sign a loan, they obviously have to pay it back. That’s why asking about payment schedule options is important. Generally, loan payments are paid once a month, but investment properties may not bring in a monthly income, as tenants may pay biweekly or on another schedule.
This ultimately could impact the borrower’s ability to pay on a monthly basis. Some lenders may offer other options regarding payment frequency that could better line up with the borrower’s rental income.
Additionally, if a borrower doesn’t have a tenant for a certain period of time, some lenders may offer a break on making payments if the borrower is ahead on their schedule. Investors should ask potential lenders about payment schedule options so they can ensure they collect the money they need every month on time.
Comparing investment loans is something every borrower should do before making a final decision. Looking into different types of loans, down payment options, and even payment schedule options can help investors ensure they’re choosing the right loan for them. This way, they’re happy with their loan and can then plan rent collection and other financial aspects around their loan.
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